USAID Commercial Law and Institutional Review 2005 Macedonia

If the old proverb is true that we reap what we sow, then Macedonia is clearly beginning to reap its investment in legal and institutional reform. In most areas, the 2005 Commercial Legal and Institutional Reform Assessment highlights progress and improvements, many of them quite significant. When contrasted with poor recent performance in economic growth and development, the positive scores emphasize a critical point: healthy commerce, investment and trade depend on much more than good laws. Reaping the harvest of improved economic vitality continues to require substantial effort and additional investment, primarily in improving institutional capacity and performance.

The greatest reform weakness to date is the judiciary. Virtually all stakeholders recognize that the failure of the judiciary to effectively resolve commercial disputes and enforce commercial claims harms the commercial environment. Few, however, understand why. Economic actors must balance costs, risks and revenues in order to survive and prosper.

If there is no reliable system for peaceful resolution and enforcement of obligations, then costs of collection and risks of non-collection increase dramatically. These increased costs and risks lead to higher interest rates, more restrictive credit terms, less availability of reasonable credit, lower sales, lower profitability, lower tax revenues, lower economic growth, and even disinvestment.

Macedonian and foreign investors readily understand the connection between the crisis in the judiciary with their ability to prosper. Fortunately, there is hope for improvement on the horizon due to legislative changes coming into effect in 2006. Improvements in other institutions – discussed in this assessment – suggest that the hope for change is reasonable. Properly implemented, changes in the courts will have a measurable impact on economic development.

Already, the crisis has led to much needed development of missing parts of a healthy enforcement system, with the appearance of self-help, private collection services, and the beginnings of a credit information system since 2003. The lynchpin, however, is the judiciary.

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